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D prepares its accounts to 30 September each year. During the year to 30 September 20X2 the engineering division was being sued for damages relating to a faulty product it manufactured. Independent consultants have prepared a report that confirms that the product was faulty but this was partly due to the failure of a component that was manufactured by C. The damages are estimated at $1 million and the level of contributory negligence of C is considered to be 40%. How should the above be shown in the financial statements for the year ended 30 September 20X2? A. Disclosure of a contingent liability and disclosure of the contingent asset as it is probable that they will have to pay out and reclaim 40%. B. A provision of $1 million and disclosure of the contingent asset. C. Disclosure of a contingent liability and no disclosure of the contingent asset as it is not virtually certain. D. Provision of $1 million liability and an asset of $400,000 (40%) shown separately on the statement of financial position. |